Monday, March 19, 2012
Break them down
My latest article in Republica is regarding South Asian trade. The direct Republica link is here. The original unedited version is below.
Intra-regional
Trade in South Asia: We Can Do Better
Let me start this article with information that probably only a handful
of South Asians know. Before the Second World War, the volume of trade between
South Asian countries accounted for 20 percent of world trade. In 1950, that
fell to 4 percent. By 1967, it fell further to 2 percent. By 2010, there was a
slight improvement—a rise to 5 percent.
This apathy towards intra-regional trade in South Asia has resulted in
our region growing at a slower rate than Sub-Saharan Africa. A decade ago, if anyone
had told us that Sub-Saharan Africa would outpace our region in economic growth
in 2012, we would have laughed. Yet, that is precisely what has happened. According
to The Economist, in the ten years between 2002 and 2012, Sub-Saharan Africa
grew faster than South Asia in “all” of those years, and grew faster than Asia
in eight of those years.
When compared to regional trading blocs like the EU, North America and
MERCOSUR, the SAARC region is inept in facilitating trade among its members.
Even the African trading bloc COMESA (Common Market for Eastern and Southern
Africa) has made more progress than our SAFTA has ever made, and has lifted
many out of poverty through trade. So, what happened to us in the last sixty
years? How did we go from a “global force” in trade to become a mere footnote?
There are many bottlenecks in facilitating trade in our region. A
dominant political inertia has meant that our regional politicians are
vehemently protective of their domestic industries. This has bought them
short-term political popularity, but has hurt the economic growth of the
region. The leaders in European countries realized a need for a unified market
where labor and capital moved freely so that significant gains could be made
from deregulation of trade barriers. However, our leaders clearly have no
intention of proposing and negotiating such arrangements in our region.
Even after reading about the harmful effects of import substitution in
our economics textbooks, our leaders revel in participating in such practices.
All South Asian countries maintain sensitive lists of products on which
there are either tariffs or import restrictions. To garner votes, our
politicians provide subsidies to the labor-populated economic sectors like
agriculture. These discrepancies, that our governments in the region have been
creating, are the main reason why illegal cross-border trade and informal
(underground) markets are flourishing in South Asia.
The members of SAARC, despite what the name suggests, are anything but
cooperative when it comes to removing the trade barriers. An import
quota system imposed by India since 2006 has all but destroyed the Sri
Lankan vanaspati ghee industry. The irony is that the very reason why Sri
Lankan vanaspati ghee industry grew was because of initial heavy capital
investments by Indian investors. And, now, all that investment, cooperation and
goodwill has been endangered due to India’s insistence on the quota on the
product.
There are many non-tariff barriers (NTBs) that
hinder our regional trade. The highways linking South Asian markets are poor,
to say the least. Letter of Credit (LoC) issued by Indian banks is not accepted
in Pakistan, and vice versa. And, then there’s the vigilante factor. Indian custom law states that tea shipments from
Nepal need to be tested only once every six months. Yet, last year, an Indian
border agent refused to let Nepali tea shipments to pass through the
Kakarbhitta checkpoint in Eastern Nepal because he insisted on testing those
shipments “himself”. The insistence continued even after Nepali exporters
showed him the test “certificate” given by the Indian government.
In light of all these problems, our region cannot accrue any gains from
trade if we do not work towards addressing and solving these problems. In this
regard, the media can play a significant role. The media should highlight
significant trade agreements made by, and between, the member states of this
region. For example, the BIPPA that Nepal and India recently signed. Our media
should portray such regional dialogues and facilitations in a positive light.
Yes, the details of the agreements could be debatable, but the importance
should be given to the fact that the “dialogues” and “agreements” are happening
in the region. The debatable details can always be fine-tuned, changed, or ironed
out.
Also, the markets in our region should be interconnected. Transport
infrastructure such as roads, highways and ports should be accessible to one
another, should be well maintained, and safeguarded by mutual cooperation.
SAARC regional trade will receive a boost if India allows Nepal and Bangladesh
to use the Indian roads for a direct trade, without having to load and unload
goods in the Nepal—India and India—Bangladesh border points.
Like the developed world, we should integrate our equity markets, too.
The bond markets in South Asia are very poorly developed, and they are not
integrated. We should make efforts towards such integration because it would
help the member states gain valuable access to capital. For example: if we had
a regional bond market today, an entrepreneur or a business in Bangladesh, Sri
Lanka or Pakistan could borrow and use the excess liquidity from the Nepali financial
market. In today’s business climate, such initiatives are not only desirable,
but also necessary.
Our region should also learn from the “China syndrome”. Essentially, it
means that salary, income and standard of living also grow when an economy grows.
Increasingly, the Chinese workers are seeking better and high-paying
opportunities than that offered by manufacturing and agriculture. To counter such
problems from ever occurring in our region, we should have a regional
cooperation where labor flows freely between our countries in the same manner
as goods and services. A smooth flow of intra-regional labor ensures that no
industry in any of the member countries will suffer from shortage of
labor—quantity or quality wise.
Labels: SAARC, SAFTA, south asia, trade
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